KARACHI: Bank lending to the private sector rose 22% year-on-year to 8.07 trillion rupees in May, central bank data showed on Friday.
Private sector companies took out loans of 6.928 billion rupees at the end of June, up 21.3% from a year earlier.
The increase in demand for credit from the private sector is due to the increase in economic activities in the country. Higher input prices have also increased demand for working capital loans from businesses. In addition, refinancing programs introduced by the State Bank of Pakistan have supported an increase in bank lending from private borrowers.
Housing finance and auto finance also contributed to the rise in bank lending. An increase in bank lending to private businesses is being aided by strong demand for working capital loans from the manufacturing sector, especially textile producers.
Loans to the manufacturing sector reached 4,451 billion rupees in June, compared to 3,548 billion rupees in the same month a year earlier. Textile companies took out loans of 1.477 billion rupees from banks, compared to 1.114 billion rupees last year.
Banks extended 1.034 billion rupees of credit to food manufacturers in June, compared to loans of 897.7 billion rupees a year ago. Auto financing increased by 19.4% to reach 368 billion rupees in June.
The advances on deposits (ADR) ratio stood at 48% in June, up 228 basis points year-on-year and down 344 basis points month-on-month. The investment-to-deposit ratio (IDR) increased by 695 basis points to 76% in June.
Analysts said the rise in ADR is fueled by the growth in lending to the private sector over the period, particularly due to the Temporary Economic Refinancing Facility (TERF), housing finance, etc. Disbursements also increased in case of working capital and commodity financing.
The investment-to-deposit ratio (IDR) will also remain higher this year.
Given the current economic situation, any extra cash should be diverted into government securities, as history suggests that banks did not take the risk of losing their principal amount in an interest rate environment. higher. the banking sector with the interest rate cycle. Currently, the industry’s IDR is hovering at 69% (mainly due to rising repo borrowing).